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    Residual dividend policy debated

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    Positive NPV projects enhance shareholders' wealth. However, in some cases the payment of dividends limit the number of positive NPV projects a firm can accept. Why, then shouldn't shareholders prefer a residual dividend policy?

    © BrainMass Inc. brainmass.com June 3, 2020, 5:21 pm ad1c9bdddf
    https://brainmass.com/business/dividends-stock-repurchase-and-policy/residual-dividend-policy-debated-22795

    Solution Preview

    Since profits vary over time, dividends should also vary. Many stockholders, however, rely on dividends to meet expenses.

    Under the residual dividend model, dividends are determined as follows:
    1. The firm determines its optimal capital budget;
    2. ...

    Solution Summary

    Residual dividend policy and shareholders are correlated in the solution.

    $2.19

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